Egypt Monetary Policy

At its 29 October monetary policy meeting, the Central Bank of Egypt (CBE) decided to maintain the overnight deposit rate at 8.75%. The decision met market expectations and marked the sixth consecutive meeting at which the Bank kept rates on hold. The Bank also kept its overnight lending rate and main operation rate unchanged at 9.75% and 9.25%, respectively. Despite a weak growth environment, concerns about persistently-high inflation and ongoing capital outflows prompted the Bank to keep rates unchanged.

In its accompanying statement, the CBE emphasized that the economy grew 3.0% annually in the January-March period (the third quarter of fiscal year 2014-2015). However, the result was down from the 6.8% and 4.3% annual growth rates tallied in the previous two quarters. Going forward, the Bank expects public investment in large infrastructure projects to contribute to growth. However, the Bank acknowledged that the weak global economic recovery and softening growth in emerging markets present downside risks to the domestic outlook.

In terms of price developments, inflation jumped from 7.9% in August to 9.2% in September, due in part to higher food prices. Inflation had moderated for three straight months prior to September, but price pressures stemming from the government’s cut to subsidies last summer have clearly not subsided. Meanwhile, core inflation in September held at August’s 5.6%. However, the CBE added that the inflationary pressures due to domestic supply issues are partly mitigated by contained inflation of imported goods amid low global commodity prices.

The Bank judged that keeping its rate unchanged was, “appropriate given the balance of risks surrounding the inflation and GDP outlooks.” The current controversial central bank governor Hesham Ramez is set to be replaced by Tarek Amer on 26 November. The Bank’s next monetary policy meeting is scheduled for 17 December.

FocusEconomics Consensus Forecast panelists expect the overnight deposit rate to end 2015 at 8.88%. For 2016, panelists see the overnight deposit rate ending the year at 9.00%.

At its monetary policy meeting held on 15 November, the Central Bank of Egypt (CBE) left the overnight deposit rate at 16.75%, the overnight lending rate at 17.75% and the main operation rate at 17.25%.

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